1975 (11) TMI 22 - HC - Income Tax

Assessment Notice Assessment Proceedings Income Tax Act Notice Of Reassessment Original Assessment Reassessment Proceedings Supreme Court

Summary

Issues Involved:
1. Validity of reassessment proceedings under section 147 of the Income-tax Act.
2. Jurisdiction of the Income-tax Officer to assess other items of income or withdraw excessive relief during reassessment proceedings.

Detailed Analysis:

Issue 1: Validity of Reassessment Proceedings Under Section 147
The core issue was whether the reassessment proceedings initiated under section 147 of the Income-tax Act were valid. The original assessment for the assessee, a textile mill company, was completed on June 16, 1962. Subsequent to this, the Income-tax Officer (ITO) noticed that certain items had escaped assessment, leading to the issuance of a notice under section 147 on March 28, 1964. This notice was based on the belief that development rebate on a machinery part called 'warp stop motions' was incorrectly allowed. However, the Supreme Court's decision in Commissioner of Income-tax v. Mir Mohamed Ali [1964] 53 ITR 165 (SC) later clarified that development rebate was admissible on parts of machines, which meant the initial reason for reassessment no longer stood valid.

The Tribunal held that since the foundation for the reassessment had vanished due to the Supreme Court decision, the reassessment proceedings were bad in law. However, the court clarified that the validity of the initiation of reassessment proceedings should be judged at the moment of initiation. At that time, the ITO's action was valid based on the prevailing legal understanding. Therefore, the reassessment proceedings were held to be validly initiated despite the subsequent Supreme Court ruling.

Issue 2: Jurisdiction of the Income-tax Officer During Reassessment
The second issue was whether the ITO could assess other items of income or withdraw excessive relief during reassessment proceedings. The ITO had brought to tax two additional items: rebate on account of corporation tax and profit under section 10(2)(vii) of the Indian Income-tax Act, 1922, which had escaped assessment in the original proceedings. The Tribunal initially held that the ITO could not assess these additional items since the foundation for reassessment had vanished.

However, the court referred to the Supreme Court's decision in V. Jaganmohan Rao v. Commissioner of Income-tax [1970] 75 ITR 373 (SC), which clarified that once reassessment proceedings are validly initiated, the ITO has the jurisdiction to assess the entire income that had escaped assessment. This principle was further supported by the Madras High Court in AL. VR. ST. Veerappa Chettiar v. Commissioner of Income-tax [1973] 91 ITR 116 (Mad) and the Gujarat High Court in Controller of Estate Duty v. N. A. Merchant [1975] 101 ITR 270 (Guj).

The court concluded that the ITO's jurisdiction in reassessment proceedings is not confined to the items for which the reassessment was initiated but extends to all items of income that have escaped assessment. Therefore, the ITO was within his rights and duty-bound to assess the additional items during the reassessment proceedings.

Conclusion:
The court held that the reassessment proceedings were validly initiated and the ITO had the jurisdiction to assess other items of income or withdraw excessive relief during the reassessment. Both questions referred to the court were answered in the negative and in favor of the revenue. The assessee was ordered to pay the costs of the reference to the Commissioner.